South Africa to make big budget cuts, provincial leader says

South African President Jacob Zuma told provincial leaders that the government will make deep cuts to budget allocations in the coming fiscal year, requiring spending curbs on personnel and infrastructure, Western Cape Premier Helen Zille said.

Zuma convened a meeting in the capital, Pretoria, two weeks ago “where premiers were told in plain language that urgent and far-reaching budget cuts are needed,” she said in an e-mailed statement on Tuesday. “Cabinet has resolved that money committed to national and provinces for the new financial year will be substantially cut across the board.”

Finance Minister Pravin Gordhan, who will deliver his budget plan on Feb. 24, is seeking to avoid a credit-rating downgrade to junk in the face of plunging commodity prices, weak demand from China and the worst drought in more than a century. While a slowing economy has prompted the government to put a cap on spending growth, it has so far avoided cuts.

Gordhan “is already on record that we’re in a tough fiscal environment and that we will continue in the path of fiscal consolidation to demonstrate our credibility,” Phumza Macanda, a spokeswoman for the Treasury, said in an e-mailed response to questions.

Zuma said on Wednesday he is “disappointed” that Zille released private information to the public.

“The confidential contents of the consultation have been released to the public by Ms. Zille without authorization,” Zuma said in an e-mailed statement.

The World Bank on Tuesday cut this year’s growth projection for South Africa to 0.8 percent and said the economy is at risk of falling into recession. A weaker economy may make it harder for the government to meet its target of narrowing the budget deficit to 3.3 percent of gross domestic product in the year beginning April 1.

Zille said the Western Cape, the only province not controlled by the ruling African National Congress, will be required to make “substantial budget cuts, running into hundreds of millions of rand” over the next three years. That may affect the province’s spending on infrastructure projects and salaries, she said.

Additional funds that the National Treasury had earmarked to provinces to cover above-inflation wage increases will now be diverted to other spending items, Zille said. The government last year awarded civil servants pay raises of 7.2 percent compared with original budgeted estimates of 5.5 percent.

 – Bloomberg